SAMA may toe US Fed's line on interest rate hikes: Jadwa

Saudi Arabian Monetary Authority (SAMA) is expected to follow the US Federal Reserve’s decision of having a maximum of two rates hikes this year, down from an expectation of three, Jadwa Investment said in a new report on Wednesday.

"If the Fed decides to go with its plan of two hikes in 2019, we could see the repo rate at 3.5 percent, and the reverse repo at 3 percent, by the end of 2019," the report noted.

SAMA had increased the reverse repo and repo rates by 25 basis points (bps) four times, in March, June, September and December 2018, similar to the US Fed’s interest rates hikes last year.

Meanwhile, the report said it expects a number of elements to weigh on credit to the private sector such as labor market reforms and value-added tax (VAT), which are expected to affect the wholesale and retail sector activities.

According to the latest GDP figure, the wholesale and retail sector saw an average of a flat performance in the year-to-September of 2018.

"In 2019, the wholesale and retail sector is also likely to be affected by the reduction in VAT threshold starting Q1 2019, from a turnover of SAR 1 million in 2018, down to SAR 375,000 in January 2019," Jadwa noted.

However, higher government spending in the 2019 budget, reaching SAR 1.1 trillion, is expected to positively impact credit to the private sector and bank deposit, it added.